I think it’s fair to say that distributed ledger technology (DLT), a.k.a. the blockchain, is making real inroads into the complex universe of post-trade securities operations.
I am referring to the infrastructure-building/plumbing aspects of DLT, which emerged before its role in the wild embrace of crypto- and digital asset transactions, tokenization, etc. The DLT-based systems I am focusing on could possibly replace incumbent post-trade systems.
As I guessed when I first started reporting upon DLT as the new plumbing for Ops, the impacts have been gradual and not the overnight sensation that the so-called experts were predicting. In fact, there were other experts telling me not to write about DLT, bitcoin, etc. because it all would quickly fade.
But this posting is not about the horrible hype-train that blasts anointed technologies, the latest business trends, buzzwords, talking heads, and rehashed ideas into our consciousness until we are sick of them.
What I’d like to suggest is that we might be finally seeing “the dawning of the Age of DLT.” (Yes, I am paraphrasing a great song from the musical “Hair,” which like DLT broke all the rules and ultimately disintermediated many norms.)
So, for some anecdotal evidence, let’s review recent coverage via FTF News:
- Schroders Embraces Blockchain & Other News Briefs: https://bit.ly/3PMb0OW
- BNY & Goldman Sachs Test Drive DLT & Other News: https://bit.ly/3yWX2Tz
- SocGen Joins Broadridge’s Repo Platform & Other News: https://bit.ly/3v2rD0V
These are major firms that are not known for being technology gadflies. They have dug in, tested DLT, and are determined to make it work in the real world. They are not alone.
Speaking of the real world, the International Securities Services Association (ISSA) has released the results of its 2022 “DLT in the Real World” industry-wide survey.
The Zurich-based ISSA is an association whose members are central securities depositories (CSDs), custodians, technology vendors, and other companies “actively involved in all aspects of the securities services value chain.” (The DLT research was funded Accenture, Broadridge Financial Solutions, and VMware, and overseen by the ValueExchange, according to ISSA).
The survey of financial services organizations across the globe yielded “68 firms taking the time to contribute — thank you very much,” Colin Parry, CEO of ISSA, says in his posting about the results.
The survey effort “is designed to provide you with unique, actionable insights on how DLT is being used across the world, giving you the chance to learn from your customers and your peers where DLT is solving real world problems, where it is not and how people are making the most of this technology,” Parry says. “This is the third iteration of the survey and so this allows us insights into changes over time and it starts to show in the evolution of our industry and of DLT.”
The key findings via ValueExchange have been initially released as “an early view of the headline conclusions” and are:
- DLT is gaining ground in production: “Live DLT usage” is up four-fold in 2022 — from eight percent in 2021 to 32 percent of survey participants saying that they are live with DLT in production.
- Here is what other survey participants are doing:
- Researching DLT: 21 percent
- Launching DLT pilots: 16 percent; and
- Building DLT projects: 31 percent
- The Data Advantage: The report has found that DLT is “a data play as much as an automation or transactional solution” that promises:
- Instantaneous transactions;
- Real-time data availability;
- Real-time data synchrony;
- Process automation;
- Platform security;
- A transparent audit trail;
- An extendible data model; and
- A digital identity.
- Good fits for DLT: The survey has made clear that “DLT’s value depends on the problem: but highly paper-based, highly networked assets are the ideal target.”
- Here is what other survey participants are doing:
A fuller reporting of the results is imminent and ISSA officials will spread the word “through a podcast and drive forward the ISSA DLT Working Group’s next topics … The podcast will be published in September.” ISSA’s initial results can be found here: https://bit.ly/3z6Ox8x
Getting back to my earlier notion about gradual progress, there are those who remain resistant to DLT – namely very large banks.
In May, Federal Reserve officials released the “Senior Financial Officer Survey Results,” which included questions about DLT and cryptocurrency trends via the “Part 3: Digital Innovation” section.
“The questions in part 3 asked respondents about their bank’s strategy and investment plans as they relate to distributed ledger technology (DLT) and crypto-related products,” according to the report.
“When asked about the relative priority of distributed ledger technology and crypto-related products and services as a part of their bank’s growth and development strategy over the next two years, two-thirds of respondents cited that this was either not a priority or it was a low priority and about one-fourth cited that it was a medium or high priority,” according to the report.
However, when the researchers extended the time frame “to the next two to five years, the responses were more spread out. Respondents were roughly evenly split with most citing that it was not a priority or a low priority for their bank or citing that it was a medium to high priority for their bank.”
“When asked about the expected impact of DLT or crypto-related products on their bank’s liquidity management practices in the next 2-5 years and 5-10 years, respondents generally reported that their bank does not see these technologies as having large effects on liquidity management, with most respondents reporting not important to moderately important for both time periods,” according to the report.
Ultimately, banks are taking a wait-and-see attitude.
“When provided with an opportunity to share further comments on their bank’s DLT and crypto-related product plans, some respondents noted that their bank is actively monitoring the situation and will adapt to the landscape as needed,” the report notes. (The full report is here: https://bit.ly/3vdPhHN.)
So, it’s no surprise that banks may still shy away from DLT just as other nimbler financial services firms and IT/service providers are ready to become pioneers.
It’s up to the pioneers now.